Purchased Life Annuity

Boltonlass

dunstonh wrote: »

Generically, the examination answer would be that you should take the 25% and use a purchased life annuity. However, commercially, PLAs are not that well priced compared to lifetime annuities. There is a tax advantage so in this scenario, you would need to get a PLA quote and an enhanced annuity quote and see which results in the best NET position. Its the only way to tell as until then, its speculation as to which will be best.

Thanks for your answer and I appreciate you answering my specific query. It is difficult to assess the worth of an annuity of course, because it's effectively a gamble on life expectancy, but at the moment the income is more useful than a lump sum. We have been doing our own drawdown on my husband's pension lump sum, keeping it in ISAs and drawing it down until his state pension. We had stepped ISA's which have given us as much as 6% this year, but those are coming to an end now.

I'm assuming from your reply that PLAs dont get enhanced? Is there any other worthwhile way I can get a monthly income?

kidmugsy

Boltonlass wrote: »

Is there any other worthwhile way I can get a monthly income?

(i) Is your target to bridge the gap until your State Pension begins?

(ii) How much taxable annual income do you have at the moment?

Boltonlass

kidmugsy wrote: »

(i) Is your target to bridge the gap until your State Pension begins?

(ii) How much taxable annual income do you have at the moment?

Hi
No particular target, we are fine with the money we have saved and can easily live on our work pensions (my husband was a senior teacher and I was a high grade civil servant). My current income is about 17k of which the usual 10k approx is free of tax. Our joint retired income is about 37k, with no mortgage. We are very well off in terms of savings, each with the full ISA limit plus a Santander current a/c maxed up to 20k and other savings as well.
I won't get much of a state pension having paid reduced stamp but we have always been aware of that and it's not a problem.

Boltonlass

I am now looking at P2P, I am risk averse but it seems to me that the risk is acceptable and it will give me a monthly income on the £4250. I can afford to lose the capital if it comes to the worst case scenario.
My initial inclination is to spread it over the three main P2P companies, Zopa, Funding Circle and Ratesetter. I am happy to fix for as much as 5 years given that we will achieve a monthly income from it.
I don't normally fill in an annual tax return. Is that easy enough to do?

greenglide

With the on-line self assessment it is very, very easy.

It is worth doing this even if you think there is no need.

kidmugsy

Boltonlass wrote: »

I am now looking at P2P, I am risk averse but it seems to me that the risk is acceptable and it will give me a monthly income on the £4250. I can afford to lose the capital if it comes to the worst case scenario.
My initial inclination is to spread it over the three main P2P companies, Zopa, Funding Circle and Ratesetter. I am happy to fix for as much as 5 years given that we will achieve a monthly income from it.
I don't normally fill in an annual tax return. Is that easy enough to do?

The govt had hoped to have P2P ISAs available next tax year: you could wait to see what's in the budget next week.

kidmugsy

Boltonlass wrote: »

... we are fine with the money we have saved and can easily live on our work pensions (my husband was a senior teacher and I was a high grade civil servant). My current income is about 17k of which the usual 10k approx is free of tax. Our joint retired income is about 37k, with no mortgage. We are very well off in terms of savings, each with the full ISA limit plus a Santander current a/c maxed up to 20k and other savings as well.

In that case perhaps you should ask yourself which risk it is that you are so averse to. For instance, if your fear is a banking collapse so severe that the ATMs run empty, take the £4250 as cash and store it at home or in a safety deposit box somewhere. If your fear is a collapse of the value of fiat currencies, buy gold sovereigns and store them similarly. If it's the return of inflation, ask yourself whether buying equities, or property, or commodities, or index-linked gilts would be a good move. If it's a collapse of the pound, buy foreign shares/bonds/currency.

It seems that you are entirely dependent on two pensions from UK govt employment, plus a heap of cash savings in sterling. That lack of diversification seems risky to me.

Boltonlass

kidmugsy wrote: »

The govt had hoped to have P2P ISAs available next tax year: you could wait to see what's in the budget next week.

I have that in mind and am keeping my fingers crossed!

jamesd

You can choose to fill in a tax return but alternatively you can phone or write a letter to HMRC telling them about the interest.

Boltonlass

jamesd wrote: »

You can choose to fill in a tax return but alternatively you can phone or write a letter to HMRC telling them about the interest.

Yes, I have read that you can do on one of the P2P forums, HMRC then adjust your tax code for the year coming. Sounds simpler than completing a tax return but then again I prefer the idea of filling something in online rather than pen and paper! Anyway, that's for the future.

I have spent the afternoon looking at P2P and decided that Funding Circle is a step too far for me, but I am very interested in spreading the money between RateSetter and Zopa. They are both well established, spread the loan and have what seems to be reasonable insurance in place to limit the affect of default, and they lend to individuals rather than businesses.

My £4250 comes available after the Budget so I will be able to decide on ISA possibilities depending on the Chancellors statement.